- Reporting tax schemes – the deadline expires on June 30th, 2019
- Changes in collection of withholding tax – payments over PLN 2 million
- Poland won with the European Commission on the retail tax case
- No VAT deduction with the fuel card
- Work contract with zero costs
- High penalties for the failure to use the split payment mechanism
1.Reporting tax schemes – the deadline expires on June 30th, 2019
As of January 1st, 2019, new regulations in the Tax Ordinance regarding the reporting of the so-called tax schemes have been introduced (more details: http://advicero.eu/raportowanie-schematow-podatkowych-mandatory-disclosure-rules-od-2019-r/)
According to the tax law, tax schemes are understood as an activity or a set of related activities in which at least one party is a taxpayer or which have or may have an impact on the creation or non-existence of a tax obligation (otherwise known as an arrangement), and at the same time:
- meet the main benefit criterion and have one of the general hallmarks listed in the Act or
- have a special hallmark or have another special hallmark.
Domestic schemes are subject to reporting when the beneficiary is a qualified entity – its revenues, costs or assets exceed EUR 10 million or the scheme concerns items or rights with a market value above EUR 2.5 million, or the user is related to an entity that meets the above quota criteria.
For cross-border schemes, the criterion of qualified beneficiary has not been introduced, therefore they are subject to reporting irrespective of the amount of reconciliation or the nature of the participant.
The regulations of the Tax Ordinance have introduced the deadline for reporting – this is in principle 30 days:
- from the next day after providing the tax scheme,
- from the next day after preparation to implement the tax scheme, or
- from the date of the first activity related to the implementation of the tax scheme
– depending on which event occurs first.
Nevertheless, with reference to tax schemes implemented in 2018, i.e:
- cross-border, in relation to which the first activity related to their implementation was made after June 25th, 2018
- domestic, in relation to which the first activity related to their implementation was made after November 1st, 2018.
the obligation to report these schemes has been postponed until June 30th, 2019.
The lack of reporting on the scheme, as well as the failure to meet other information requirements for participating entities, or the lack of internal reporting is as a rule considered as a tax crime and is subject to high fines.
Feel free to contact us for practical questions regarding reporting of tax schemes or the shape of the mandatory internal procedure.
2.Changes in collection of withholding tax – payments over PLN 2 million
From 1 July 2019, the changed rules for collecting withholding tax are in force:
In particular, significant changes relate to cases where payments made by a Polish payer to the same foreign entity exceed PLN 2 million during the financial year 2019 – in this case, from July 1st, 2019, subsequent payments to such entity require either to collect 19% or 20% withholding tax, or the use of additional comprehensive documentation required for not collecting such a tax.
Feel free to contact us if you need to make appropriate declarations, conduct due diligence, apply for a security opinion or request a refund of the overpayment withholding tax.
3.Poland won with the European Commission on the retail tax case
In 2016, Poland tried to introduce a tax on retail sales, whose taxpayers would become the largest retail chains. According to the assumptions, it was planned to introduce two rates of retail tax: 0.8 percent. from income between PLN 17 million and PLN 170 million monthly and 1.4 percent from income above PLN 170 million per month. The tax was to apply from September 2016.
The European Commission stated that such a tax structure favors in practice smaller stores and retail chains, which is why it constitutes hidden public aid. The proceedings were initiated and the tax was banned before the date of its formal application. Poland did not agree and appealed against this decision, indicating the similarity of the form to taxes operating in France or Spain.
Last month, on May 16, 2019, Poland won the case in the EU Court regarding the retail tax. The court ruled that the construction of the tax is not a form of public aid for a selected group of entrepreneurs, as the Commission argued. The Commission will probably appeal to the second instance, so we will have to wait for the final decision.
In practice, there is the possibility that Poland will be able to collect a retail tax from January 2020.
4.No VAT deduction with the fuel card
On May 15th, 2019, the CJEU issued a judgment on VAT taxation of transactions related to the use of fuel cards (reference number C-235/18, in the Vega International case). The CJEU considered that neither the fuel card issuers nor their customers buying petrol or diesel fuel at the station can deduct the VAT if the issuer re-invoices the fuel to the user and charges a fee. This is due to the fact that an issuer who makes fuel cards available to customers does not sell fuel, but provides a financial (credit) service that is exempt from tax.
The case ruled by the CJEU concerned the Austrian company Vega International, which issued personal fuel cards, among others to drivers of the Polish subsidiary Vega Poland. The Austrian company received invoices from the Polish fuel suppliers with the VAT indicated. At the end of each month, it re-invoiced them to Vega Poland and added a 2% fee. The transaction concluded between the fuel seller, the issuer of the card and the recipient was treated for VAT purposes as a commodity chain transaction, which allowed deduction of the VAT due for each of the entities involved in the transaction.
The above scheme has been challenged by the court. According to the CJEU, the card issuing company does not sell fuel, it only credits its purchase. The CJEU explains that in this situation, the client “takes credit” for gasoline. This classification is crucial for determining the tax consequences, because financial services are exempt from VAT, meaning you can not deduct tax from them.
This type of judgment may significantly affect the current settlements based on fuel cards. Although some entities give arguments about the inadequacy of applying the CJEU judgment to their situation, there is a risk of questioning their right to deduct input VAT. It is expected that the Ministry of Finance will issue a general interpretation on this matter.
5.Work contract with zero costs
The current regulation gives the possibility to apply lump-sum costs of 50% or 20% in the case of contracts for works. However, such costs cannot be assumed for all works as interpreted by the Director of the National Tax Information (NTI) on May 10th, 2019, ref. 0113-KDIPT3.4011.119.2019.2.SK.
The issue at hand is whether it is allowed to deduct the lump-sum costs of obtaining income from contracts for specific work with the transfer of copyrights. The taxpayer hired experts who prepared specific application documentation and finally transferred copyright to it. According to the NTI interpretation, 50% tax-deductible costs cannot be applied to work of experts who write and then evaluate applications. The director explained that the catalogue of authors in the Act on personal income tax does not include experts who write and assess applications.
In this case, the 20% tax deductible costs also cannot be applied. Income from salaries paid to experts who transfer rights to created works should be classified as revenues from proprietary rights. In this case, the taxpayer does not have the right to apply lump-sum tax-deductible costs, therefore the tax will be paid on income.
6.High penalties for the failure to use the split payment mechanism
The Ministry of Finance is working on a draft amendment to the VAT Act, pursuant to which a mandatory split payment will be introduced for specific supplies of goods and services. According to the project, the changes are to concern the catalogue of about 150 goods or services indicated in the planned Annex No. 15 to the Act on VAT. The obligatory split payment is to apply in the above cases when the value of payment exceeds PLN 15,000 and shall apply to transactions from September 2019. At the same time, the obligatory split payment is meant to mark the end of the domestic reverse charge.
The aim of the amended regulations is to further reduce tax fraud. Entrepreneurs generally approve the idea of the project, but the very form in which the legislator gives it leaves some concerns. Among others, the Ministry of Finance requires to have the words a “split payment mechanism” included on invoices, and any errors related to split payment or typos on invoices should be punished with 100% VAT sanction. For omitting the split payment, the provisions also provide for penalties for the payers, together with a consequence of not including such expenses in tax costs.
The project is at the consultation stage.